The current FTX management team stated that it had achieved “significant progress” in safeguarding client funds and, to date, had returned liquid assets totaling around $7 billion.
The exchange owed users about $8.7 billion at the time of the bankruptcy filing. The vast majority of the shortfall — more than $6.4 billion — consisted of fiat and stablecoins that were allegedly misappropriated, the report states.
FTX’s current chief executive John Ray also disclosed details of the corporate misconduct. According to him, employees at FTX Group lied to banks about using the accounts of the subsidiary Alameda Research to transfer customer funds. In 2020 some financial institutions questioned the firm’s practices and began denying transactions.
“The image of a customer-centric leader of the digital age that FTX sought to portray was a mirage. Since the exchange’s inception, the company had mixed customer deposits with corporate funds and misused them at the direction and design of former senior management,” Ray added.
One of the top executives instructed an Alameda employee to lie to a bank representative. He then claimed that customers “sometimes confuse FTX and Alameda,” but all incoming and outgoing transfers are used to settle trades of the latter.
Former managers were aware of the company’s financial problems as well. As far back as March 2022, former Alameda Research CEO Caroline Ellison, in her personal notes, estimated a cash shortfall of $10 billion.
According to the report, FTX created a new entity, North Dimension Inc., which was misrepresented as a crypto-trading firm with 2,000 counterparties and a monthly trading volume of $10 million. In fact, it was a sham company used to take in customer deposits and move funds from the Bahamas-based exchange.
Between April and June 2022, FTX received about $360 million from the fraudulent firm and another $330 million from other accounts as user assets. Of that, at least $12.7 million went to donations to political organisations.
BREAKING: FTX transferred multiple funds of customer money, one account receiving $360 million, to fund at least $12.7 million in political contributions: pic.twitter.com/ESZpAifoqW
— unusual_whales (@unusual_whales) June 26, 2023
When a junior FTX attorney discovered and raised concerns about North Dimension accounts being used to move client assets, he was nearly immediately dismissed.
The company’s total liabilities are currently around $15 billion — customers will be able to recover about 40% of their assets.
In February 2023, the company sent out confidential letters to policymakers demanding the return of donations previously received from the former exchange head Sam Bankman-Fried. FTX also filed suit against the former CEO’s partners and related firms, seeking the return of $700 million in investments.
In June, reports emerged that, over six months, the collapsed company spent $121.8 million on consulting and financial services. Of that, $761,000 went to a workstream named “relaunch of the exchange.”
In January, John Ray first disclosed that a special working group was examining the possibility of resuming the company’s operations.
In April, lawyers from Sullivan & Cromwell permitted a reorganisation of the exchange instead of liquidation or sale. The schedule they presented suggested that a detailed plan would be filed in the third quarter.
Around the same time, the idea of reviving FTX expressed by former head of institutional sales Zane Takett. In his view, the platform should resume offering all products that existed before the collapse, adding a market for tokenized claims.